–Spending Gap:Atif Mian andAmir Sufi note that retail sales are well below the precrisis trend. “Prior to 2007, spending was growing at a constant rate of about 3% real growth per year. The black dots show the pre-2007 trend and where we would be if we had continued on that trend through 2013. The Great Recession is plainly evident in the chart: see the sharp decline in retail spending in 2008 and 2009 that took us well below trend. So are we catching back up to our previous trend? Absolutely not. In fact, in 2013, it looks like the gap may be getting even larger. The gray arrow shows that we are not even close to the trend we were on before the Great Recession hit. This is unusual. In most recessions, strong growth takes us back to the trend we were on before the recession hit. Something about the Great Recession is different.” Read More »

–Raising Wages:Tim Fernholz explains why Japan and the U.S. want to see higher wages. “The advanced economies, of which the US and Japan are the two largest, are in the midst of a bout of low inflation—below the 2% target set by both countries’ central banks—that has economists warning of a need for change. The International Monetary Fund’s Christine Lagarde has been beating this drum for the last several months, fearful that slowing inflation will exacerbate the large debt burdens carried by advanced economies and make it harder for corporations to finance their operations. Neither one has good implications for ongoing global growth, especially as emerging markets appear to be the losers in the global hot money game.” Read More »

–U.S. Growth:Cardiff Garcia says to take the headline econ numbers with a grain of salt. “Given the recent past, and keeping in mind the inevitable sampling and others errors in the data, the tools simply don’t exist to measure the economy with anything like the precision implied by these ridiculous GDP trackers. Not even years later, much less in real-time. This isn’t the fault of the BEA, which does what’s possible with constrained resourced. It’s just the unavoidable difficulty of macroeconomic measurement. (And let’s face it: along with the private-sector economists who get asked to provide tracking numbers, we econo-bloggers are part of the same hypocrisy that often reports macro data with unjustifiable certainty about its contents.) All we can say right now is that the broad conditions for growth in the US, including the recent trends in net exports, seem better than they’ve been in a while.” Separately, Menzie Chinn looks at the progress made in manufacturing and exports. Read More »

–Unemployment Benefits:Rafael Lalive, Camille Landais and Josef Zweimüller look at the optimal level of unemployment benefits. “In response to the Great Recession, unemployment insurance has been extended in many countries, but there is controversy over whether such extensions are optimal. Unemployment insurance entails direct fiscal costs, and encourages job seekers to prolong their search. The familiar benefit of unemployment insurance is that it allows the jobless to maintain their consumption. However, by reducing the search effort of other workers, it also improves a given worker’s chance of finding a job. Unemployment insurance extensions appear less costly when these search externalities are considered.”

–State, Local Government:Bill McBride notes that state and local government austerity is ending. “This is a significant change from state and local governments being a headwind for the economy to becoming a slight tailwind… Now state and local governments have added to GDP for two consecutive quarters, and I expect state and local governments to continue to make small positive contributions to GDP going forward… In 2013, state and local government employment is up 74 thousand through October.”

–Policy Rules: John Taylor says hawk and dove monikers for policy makers aren’t the best way to think about differences. “A better way to classify and assess monetary policy makers would be based on their position on the rules versus discretion debate, and which way they lean in practice. There is a lot of theoretical research and empirical experience that rules-based monetary policy works better than discretion in keeping both unemployment and inflation low. And there is a clear difference between policy makers on this dimension. What about current and prospective policy makers? The give and take of Congressional hearings can be a good source of information—including the upcoming Senate confirmation hearings. But there are other clues. In my book First Principles I showed how some of Ben Bernanke’s writings before joining the Fed indicated a strong aversion to rules-based strategies for the instruments of monetary policy, and I have argued that Janet Yellen is more-rules based then Larry Summers would have been as Fed chair, though she justifies the current deviation from rules by saying these are not normal times. Jeremy Stein is looking for a rules-based approach to unwinding quantitative easing, which seems sensible even if very difficult, and John Williams has generally been inclined to favor rules-based policy. Charles Plosser has been arguing in favor of sensible rules based policies for the instruments, and has been giving practical proposals to implement such policies.” Read More »

–Consumer Spending:Brendan Moore points out Gallup polling data noting consumers boosted spending last month. “Americans’ self-reported daily spending averaged $88 in October, up slightly from $84 in September but still below the $95 from August — the highest average in any month in five years. Americans’ average daily spending exceeds the $72 found in the same month last year and is the highest for any October since 2008.” Separately, Bill McBride is looking at holiday hiring for clues about retail sales.

–Abenomics Effects:Thomas Klitgaard looks at where Japan’s “wall of money” went. “The Bank of Japan announced an open-ended asset purchase program in January 2013 and an unexpectedly ramped-up version of the program was implemented in early April. Market commentary at that time suggested that flooding the economy with liquidity would lead to a “wall of money” flowing out of Japan in search of higher yields, affecting asset prices worldwide. So far, however, Japan’s wall of money remains missing in action, with no pickup in Japanese foreign investment since the April policy shift. Why is this? Here we explain that while economic theory does not offer clear guidance on how financial outflows might respond to the injection of cash from central bank asset purchases, it does point to an important constraint on the potential size. In particular, monetary expansion will not cause a surge in financial outflows unless it also induces a similar surge in capital flowing into the country.”

–You Can Pick Your Friends:Jason Fletcher and Stephen L. Ross look at the way friendship affects adolescent outcomes. “There is a large and growing literature on peer effects, but much less is known about the role of friendships and social relationships in student outcomes. The best evidence on the mechanisms behind aggregate peer effects suggests an important role for discipline and disruption. Very recent research suggests that friends can also have a substantial effect on student outcomes, and in many cases the effect of friends appears to be independent of aggregate peer effects.” Read More »

–Household Debt:Bill McBride notes that the household debt service ratio is near a 30-year low. “The overall Debt Service Ratio decreased in Q2, and is just above the record low set in Q4 2012 thanks to very low interest rates. The homeowner’s financial obligation ratio for consumer debt increased slightly in Q2, and is back to levels last seen in early 1995. Also the homeowner’s financial obligation ratio for mortgages is at a new record low. This ratio increased rapidly during the housing bubble, and continued to increase until 2008. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined to an all time low. “

–Fed Triggers:Scott Sumner wants the Fed to drop the unemployment rate trigger for rate increases. “Why do I favor dropping the unemployment trigger; doesn’t that move us away from NGDP and toward an inflation target? Not really, because the current policy is extremely weak precisely because there is no real “level targeting” aspect to it. There’s no catch-up, it’s a let bygones-be-bygones approach. If we dropped the unemployment mandate, then we’d effectively be moving to an inflation/price level target hybrid. There would definitely be a little bit of catch-up. Not much, just a 1/2% or so, but that’s better than nothing. Under current policy it’s quite likely that inflation will still be below 2% when the Fed starts raising rates (roughly when unemployment falls to 6%.) I.e. there is no catch-up at all for the current policy, which is undershooting their 2% inflation target.”

–Global Growth:Dan McCrum looks at the state of global growth forecasts. ” UBS have their binoculars out, and they see much that they recognise in an “unsatisfactory global economic recovery” out to 2015. Oh, the sunny uplands of the long-term average… Deleveraging will be with us, moving from the private sector paying down debts, to governments trimming spending and putting up taxes. It might lessen, but the fiscal drag will remain, in particular in Japan where the stimulating effect of Abenomics may fade… But what will be different? The European Union will grow. The pace is small, a mere 1.5 per cent real GDP growth forecast for 2015, but that is after years of recession, and it means export growth should help out the emerging economies just as credit expansion there runs into “debt fatigue”.” Read More »

–Finance Employment:Robert J. Shiller looks at whether there is a problem with finance jobs. “We surely need some people in trading and speculation. But how do we know whether we have too many? To some people, the question is a moral one. Trading against others is regarded as an inherently selfish pursuit, even if it might have indirect societal benefits. But, as economists like to point out, traders and speculators provide a useful service. They sort through information about businesses and (at least some of the time) try to judge their real worth. They are thus helping to allocate society’s resources to the best uses – that is, to the most promising businesses. But these people’s activities also impose costs on the rest of us. Indeed, a 2011 paper by Patrick Bolton, Tano Santos, and José Scheinkman argues that a significant amount of speculation and deal-making is pure rent-seeking. In other words, it is wasteful activity that achieves nothing more than enabling the collection of rents on items that might otherwise be free.”

–Measuring Poverty:Tim Taylor examines research on different ways of measuring poverty. “Thus, they write: ‘The results in this paper contradict the claim that poverty has shown little improvement over time and that antipoverty efforts have been ineffective. We show that moving from traditional income-based measures of poverty to a consumption-based measure, which is arguably superior on both theoretical and practical grounds—and, crucially, accounting for bias in the cost-of-living adjustment—leads to the conclusion that the poverty rate declined by 26.4 percentage points between 1960 and 2010, with 8.5 percentage points of that decline occurring since 1980.’”

–September Jobs Report:Bill McBride asks whether the jobs report for September will be released if the government shut downs. “Currently the BLS is scheduled to release the September employment report on Friday October 4th. However, if there is a partial shut down of the government by Congressional Republicans, the employment report will be delayed. Back in 1996, following the partial government shutdown from December 16, 1995 through January 6, 1996, the BLS finally released the December 1995 employment report on January 19, 1996. A similar delay would happen this time if the government is shutdown on October 1st (the fiscal year begins on October 1st).” Read More »

–Labor Market:Bill McBride looks at when employment will hit its prerecession level. “Currently there are about 1.9 million fewer payroll jobs than before the recession started, and at the recent pace of job growth it will take just under 11 months to reach the previous peak. Note: I expect another upward adjustment when the annual benchmark revision is released in January, so we will probably reach the previous peak in fewer than 11 months. Of course this doesn’t include population growth and new entrants into the workforce (the workforce has continued to grow).” Menzie Chinnalso has some thoughts on the employment situation.

–Minimum Wage:Jonathan Meer and Jeremy West examine the effects of raising the minimum wage. “The recent proposal by President Obama to raise the federal minimum wage has brought this issue back into the limelight. This column presents new research suggesting minimum-wage policies may not cause an immediate shock to employment, as is often feared, but do cause a reduction in the rate of net job growth. The long-run prospects for individuals are damaged, as they are delayed the opportunity to develop skills and work experience – that crucial first rung on the career ladder.”

–Mormonomics:Matthew Crandall examines how the Mormon church is managing its finances. (h/t Tyler Cowen) “Overall, the church has not engaged in harsh austerity measures. Rather, it has implemented Keynesian economic principles of targeted spending that it hopes will result in church growth and hence a growth in tithing revenue. For example the resent “surge” in missionary force will likely increase the number of missionaries from around 58,000 to 90,000 by the end of the year. Currently there are already more than 75,000. This resulted in the creation of 58 new missions which will result in a significant increase in expenses for the church.” Read More »

–Consumer Spending:Jeffrey M. Jones notes that U.S. self-reported spending is at its highest in 5 years. “Consumer spending has been making a comeback this year, according to Gallup’s daily spending estimates, highlighted by August’s numbers, which are the strongest in five years. Improved spending is the surest way for the economy to return to health, given how reliant the U.S. economy is on consumer activity. The August increase in Gallup’s spending measure is a positive sign for the economy after Gallup and government spending estimates suggested little spending growth in July. A key to keeping up the positive momentum is whether Americans pull back in September or continue to spend at higher levels.”

–Government Drag:Bill McBride expects state and local government drag to dwindle eventually. “One of the reasons I expect GDP to pick up over the next few years is that state and local government spending will probably stop being a drag on GDP, and might even add a little to GDP going forward. However the 2nd estimate of GDP showed state and local government spending was still a drag on GDP in Q2 (the advance estimate indicated a small positive contribution)”

–Fed Games:Evan Soltas put together a monetary policy game that lets you be the central banker. “What’s in the game? Noisy measurement. Supply shocks and demand shocks. Sticky prices. Downward nominal rigidity. A short-run Phillips Curve and long-run inflation expectations. NAIRU. Monetary policy that operates with a lag. All this I’ve realistically calibrated to match the U.S. economy. As for indicators, you get the unemployment rate, year-over-year headline and core PCE inflation, quarterly annualized percentage growth in real and nominal GDP, the monthly change in payroll employment, and the yield on the 10-year Treasury note.” Read More »

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